- 18.1 What is priority?
- 18.2 Priority rules under the PPSA
- 18.3 Priority waterfall - summary
- 18.4 First: payments to creditors - section 69
- 18.5 Second: general law liens and statutory liens and charges arising in the ordinary course of business - section 73
- 18.6 Third, takers of interests in negotiable instruments, chattel paper and negotiable documents of title – sections 70, 71 and 72
- 18.7 Fourth: control - section 57
- 18.8 Fifth – accounts – security interests over (future) accounts generated from sales of inventory, as original collateral and granted for new value – section 64
- 18.9 Sixth: “strong PMSIs” – section 63
- 18.10 Seventh: “normal” PMSIs – section 62
- 18.11 Eighth: perfected v’s perfected – earliest priority time wins – section 55(4)
- 18.12 Ninth: execution creditors may defeat unperfected security interests – section 74
- 18.13 Tenth: perfected v’s unperfected – perfected wins – section 55(3)
- 18.14 Eleventh: unperfected v’s unperfected – the first to attach wins outside of the grantor’s bankruptcy, administration or liquidation – section 55(2)
- 18.15 Priority waterfall diagram
- 18.16 Transfers of collateral
- 18.17 Security interests over ADI accounts
- 18.18 Tacking of further advances is permitted
- 18.19 Transitional security intersts – priority disputes
- 18.20 Knowledge and its diminished relevance to priority disputes
- 18.21 Accession, processing and commingling priority rules
- 18.22 Prioirity of security interests in agricultural interests
Knowledge of prior unperfected security interests, or in the case of super-priority security interests such as PMSIs or security interests perfected by control, knowledge of other existing perfected security interests, in the same collateral, is generally not relevant to determining priority disputes under the PPSA.
The general rule is that secured parties can perfect at any time to obtain priority, whether or not they have knowledge of existing security interests that they will defeat by perfection. For example, a secured party can take a subsequent all-assets (general) security interest and register to defeat a prior retention of title security interest (ROTs will usually be PMSIs) that has not been registered and so is unperfected, even if they know about the prior unperfected retention of title security interest.
There are at least four cases under the PPSA where knowledge is relevant to priority disputes between security interests and other interests:
(a) creditors receiving payments of debts from ADI accounts or by negotiable instrument –
the creditor in question must have no actual knowledge that the payment was in breach of
the terms of security agreements governing security interests over the funds or the negotiable instrument – section 69;
(b) general law liens or statutory liens or charges that secure amounts outstanding from the provision of goods or services in the ordinary course of business (below, liens) – the lien holder must have no actual knowledge that the lien arising would breach the terms of a security agreement that governs a security interest over the collateral in question – section 73;
(c) upon transfers of collateral which do not extinguish security interests, new advances made by secured parties of the buyer and made before the original secured party of the seller re-perfects against the buyer, have priority provided the buyer had no actual or constructive knowledge that the acquisition would breach the terms of a security agreement governing a security interest over the collateral granted by the seller - section 68(2)(c). See the discussion at paragraph 18.16.1 to 18.16.26; and
(d) takers of interests in negotiable documents of title, negotiable instruments and chattel paper that are subject to a security interest have priority to the security interest provided (in broad terms) the buyer or investor1:
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- provides value;
- takes possession or control over the instrument, document or chattel paper;
- in most cases, acquires the instrument, document or chattel paper in the ordinary course of a business of acquiring instruments, documents or chattel paper of that kind; and
- in many cases, acquires the instrument, document or chattel paper without actual or constructive knowledge of either the existence of a security interest over the instrument, document or chattel paper, or that the terms of a security agreement over the instrument, document or chattel paper would be breached by the acquisition. See paragraphs 18.6.1 to 18.6.20 above for further discussion of the priority rules relating to the acquisition of (interests in) negotiable instruments, negotiable documents of title and chattel paper.
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Notes:
1 PPSA section 70, 71, 72
